Same-Store Rent Growth Starts to Cool in Some Markets

After pain during the earlier parts of the pandemic, retail has made a great comeback. Research from JLL suggests that total transaction volume for the first half of 2022 was up 81% year over year. And investors continue to embrace single-tenant net lease space, with sales activity in the third quarter up between 24% and 27%, according to Marcus & Millchap.

But can that hold up/? Not if the beginnings of rent slowdown, and even reversal, spread. When Markerr recently reported on multifamily rent declines, they also noted some changes in retail rents.

Now, same-store year-over-year rent growth was up in general. The U.S. average was 7% in July. Topping out the top 100 metro areas was Cape Coral, Florida, hitting 20.3%. Palm Bay, Miami, Orlando, and North Port—all in Florida—ranged from 14.8% on the bottom.

There was, as anyone following real estate and demographic trends might guess, a bias towards certain regions in the country. Out of the top 19 listed markets, 14 were in the Sunbelt. Three were in tertiary markets (although they were in the Carolinas, so whether that is only tertiary or also Sunbelt is up for debate), leaving one spot for a coastal (San Diego) and another for a Rustbelt entry (Indianapolis).

With a national 7% average, it’s clear that some places are going to be doing significantly worse than the top markets. Where that starts to appear is in a month-over-month view.

The U.S. average of month-over-month retail growth in the top 100 metros was 0.6%. Annualized, it’s 7.2%, or 50 basis points down from the actual year-over-year grown from the previous 12 months.

In the 11 highest growth markets, the figures range from 1.2% month-over-month (11.4% annualized) in Raleigh, North Carolina and Palm Bay, Florida to a high of Durham, South Carolina’s 1.9% month-over-month (22.8% annualized).

On the low end, things were far different. Of 13 on that list, the best performance in Sacramento and Riverside, in California, and McAllen, Texas was 0% month-over-month growth, which would also be a zero annualized rate. At the very bottom were North Port, Florida and Winston, North Carolina, as -1% in a month, -12% annualized. Nine on the low end were either in the Sunbelt or classified as tertiary but also in the Sunbelt.

Annualizing data from one month is not to be taken as a trend. But it does suggest at the least two things. One is to watch retail performance carefully for further signs of rough winds. The other is to remember that any shorthand, including seeing entire regions like the Sunbelt and West as “hot” is an oversimplification that can turn around and bite developers, operators, owners, and investors.